Stonewater Roofing Ltd Co L L C v. Merryton Bossier L L C

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF LOUISIANA

SHREVEPORT DIVISION

STONEWATER ROOFING, LTD. CO., LLC CIVIL ACTION NO. 22-1048

VERSUS JUDGE S. MAURICE HICKS, JR.

MERRYTON, LLC, ET AL MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING

Before the Court is a Motion to Dismiss Fraud Claim filed by the Defendants,

Merryton Bossier, LLC (“Merryton”), Grace Chiao (“Chiao”), and Hui Ping Li (aka James

Lee Monkhouse) (“Monkhouse”) (collectively “Defendants”). See Record Document 71.

Defendants contend that Plaintiff Stonewater Roofing, Ltd. Co., LLC’s (“Stonewater”)

fraud claim in its Fourth Amended and Supplemental Complaint (Record Document 64)

should be dismissed because Stonewater has failed to plead the requisite elements under

Rule 9(b). See id. Stonewater opposes the motion. See Record Document 76.

Defendants replied. See Record Document 77.1 For the reasons that follow, the Motion

to Dismiss Fraud Claim is DENIED.

BACKGROUND

This suit concerns a roofing company, Stonewater, who agreed to perform repairs

on motel properties owned by Merryton after they suffered storm damage in early 2020.

See Record Document 64 at 2. After obtaining an initial award from their insurer,

1 In its reply brief, Defendants state that because Stonewater’s opposition brief was untimely filed, the Court

should disregard it. See Record Document 77 at 3. The Court declines Defendants’ invitation to disregard

Plaintiff's brief. While Plaintiff's Brief is untimely, the Court will consider it in the interests of deciding the

Motion on the merits. See Miller v. Am. Int'l Grp., Inc., No. 04-1417, 2006 WL 740936, at *1 n.1 (N.D. Tex.

Mar. 14, 2006) (“While Plaintiff’s Brief is untimely, the Court will consider it in the interests of deciding the

Motions on the merits. Defendants filed a Reply on January 3, 2006.”); see also S. Snow Mfg. Co., Inc. v.

SnoWizard Holdings, Inc., 921 F.Supp.2d 548, 563 (E.D. La. 2013) (considering untimely motion for

summary judgment because “a minor delay should not be dispositive of the motion, especially where the

Court will ... have to decide the issues presented on virtually the same record as that presented here”).

Scottsdale Insurance Company (“Scottsdale”), Merryton engaged Stonewater to perform

an inspection and then make all needed repairs on Merryton’s roof, as formalized in an

agreement (“the Stonewater Proposal”) entered on March 26, 2021. See id. at 3-4. The

Stonewater Proposal contained an assignment from Merryton to Stonewater of all rights

and proceeds that Merryton may obtain from Scottsdale after resolution of the insurance

dispute. See id. at 4.

Because there was a discrepancy between Scottsdale’s initial award under the

insurance policy and Stonewater’s assessment of the roof damage, an independent

appraiser and later an “umpire” both provided new estimates for the roof replacement.

See id. at 4-6. When Scottsdale continued to dispute the amount needed to make roof

repairs, Merryton, Stonewater, and Scottsdale agreed to mediate the matter on December

27, 2021. See id. at 7. As a result of this mediation, Stonewater alleges an agreement

(“the Mediation Agreement”) was reached whereby the appraisal award was set at

$1,500,000; however, this agreement was never signed by the parties. See id. (Ex. E

Settlement Agreement p.7-8). Despite the mediation, Stonewater alleges it has yet to

receive the insurance proceeds or any payment for the repair work it has performed. See

id. at 7. Thus, on April 20, 2022, Stonewater filed suit against Merryton, Chiao,

Monkhouse, and Scottsdale, alleging breach of contract, quantum meruit, detrimental

reliance, and fraud. See Record Document 1; 38.

Defendants filed a previous Motion to Dismiss (Record Document 22), and the

Court dismissed Stonewater’s quantum meruit and detrimental reliance claims with

prejudice. See Record Document 44. The Court denied the motion as to Stonewater’s

breach of contract claims and fraud claim. See id. The Court granted Stonewater’s

request for leave to amend its complaint “to correct any pleading deficiencies” to allow it

to plead with more particularity any additional allegations that may satisfy the heightened

standard required for fraud. Record Document 43 at 11. Defendants filed the instant

motion after Stonewater filed its Fourth Supplemental and Amended Complaint. See

Record Document 71.

LAW AND ANALYSIS

Rule 8(a)(2) of the Federal Rules of Civil Procedure governs the pleading standard

to state a claim for relief, requiring that a pleading contain “a short and plain statement of

the claim showing that the pleader is entitled to relief.” The standard for the adequacy of

all complaints under Rule 8(a)(2) is now a “plausibility” standard found in Bell Atlantic

Corp. v. Twombly and its progeny. 550 U.S. 544, 127 S. Ct. 1955 (2007). Under this

standard, “[f]actual allegations must be enough to raise a right to relief above the

speculative level . . . on the assumption that all the allegations in the complaint are true

(even if doubtful in fact).” Id. at 555, 127 S. Ct. at 1965 (citations omitted). If a pleading

only contains “labels and conclusions” and “a formulaic recitation of the elements of a

cause of action,” the pleading does not meet the standards of Rule 8(a)(2). Ashcroft v.

Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009) (citation omitted).

Federal Rule of Civil Procedure 12(b)(6) allows parties to seek dismissal of a

party's pleading for “failure to state a claim upon which relief can be granted.” Courts must

accept all factual allegations in the complaint as true. See Iqbal, 556 U.S. at 678, 129 S.

Ct. at 1949. However, courts do not have to accept legal conclusions as facts. See id. A

court does not evaluate a plaintiff’s likelihood for success, but instead determines whether

a plaintiff has pleaded a legally cognizable claim. See Thompson v. City of Waco, 764

F.3d 500, 503 (5th Cir. 2014). Courts considering a motion to dismiss under Rule 12(b)(6)

are only obligated to allow those complaints that are facially plausible under the Iqbal and

Twombly standard to survive such a motion. See Iqbal, 556 U.S. at 679, 129 S. Ct. at

1950. If the complaint does not meet this standard, it can be dismissed for failure to state

a claim upon which relief can be granted. See id.

“The elements of an action for fraud are 1) a misrepresentation of a material fact,

2) an intent to deceive (fraudulent intent), and 3) justifiable reliance and resulting

damages.” Tureau v. Hess Corp., No. 13-2969, 2015 WL 1542508, at *3 (W.D. La. Apr.

2, 2015). “A plaintiff bringing a fraud claim must ‘specify the statements contended to be

fraudulent, identify the speaker, state when and where the statements were made, and

explain why the statements were fraudulent.’” Thomas v. Barclays Cap. Inc., No. 18-0257,

2019 WL 113778, at *3 (W.D. La. Jan. 4, 2019) (quoting ABC Arbitrage v. Tchuruk, 291

F.3d 336, 350 (5th Cir. 2002)). “The standard for pleading fraud is, therefore, a higher

standard than the standard for pleading other claims that must only comply with the Rule

8(a)(2) standard.” Id.

In its ruling on the previous Motion to Dismiss, the Court concluded that the

pleadings in Stonewater’s Third Amended Complaint regarding its fraud claim “identify

the speakers, as required, but are lacking in detail concerning the exact statements made,

as well as when and where they were made.” Record Document 43 at 11. Defendants

argue that the new allegations in Stonewater’s Fourth Supplemental and Amended

Complaint are no less conclusory than those in its Third Amended Complaint. See Record

Document 71-1 at 6. Specifically, Defendants state that Stonewater fails to state the “who,

what, when, and where” components required by the Fifth Circuit. See Record Document

71-1 at 6. In response, Stonewater contends that the Defendants simply repeat their prior

arguments without any deference to the Court’s ruling and the specific factual allegations

added to the Fourth Amended and Supplemental Complaint. See Record Document 76

at 7.

Stonewater claims that “Merryton, Grace Chiao, and Hui Ping Li always intended

to use the money received from Merryton’s insurer to pay for other Projects and/or back

taxes owed by their other corporate entities instead of paying Stonewater for the pre-

construction and constructive services performed pursuant to the Contract.” Record

Document 64 at 11-12. It appears that after reading the new allegations set forth in the

Fourth Amended and Supplemental Complaint, Stonewater’s claim is best characterized

as fraudulent inducement, which has the same elements as a basic fraud claim. See U.S.

Fire Pump Co., LLC v. Alert Disaster Control (Middle East) Ltd., No. 19-335, 2021 WL

296073 at *19 (M.D. La. Jan. 28, 2021). Regarding fraudulent inducement, the Fifth

Circuit has explained that:

[G]enerally, there is no inference of fraudulent intent not to

perform from the mere fact that a promise made is

subsequently not performed. However, where substantial

nonperformance is coupled with other probative factors, such

as where only a short time elapses between the making of the

promise and the refusal to perform it, and there is no change

in the circumstances, an intent not to perform when the

promise was made may, in appropriate circumstances, be

properly inferred.

U.S. ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 386 (5th Cir.

2003) (cleaned up). “[T]he requisite intent must be coupled with prompt, substantial

nonperformance to demonstrate fraud in the inducement. It must be shown that the

defendant promptly followed through on its intent not to perform by substantially failing to

carry out its obligations under the contract.” Id. In its reply, Defendants state that

Stonewater has alleged Merryton’s failure to perform contractual obligations, which is not

fraud. See Record Document 77 at 1

Stonewater alleges that “Merryton knew before entering the Contract with

Stonewater that it would not remit the funds, but fraudulently induced Stonewater into

entering into the Contract and performing pre-construction and construction services on

the Hotel.” Record Document 64 at 12. Stonewater bases this assertion off a purported

conversation with Monkhouse during which he “verbally told Roland Browne, manager

member of Stonewater, that Merryton had already spent the Initial Award owed to

Stonewater to pay for the work performed at the Cheeriton Project and/or to pay back

taxes owed by Cheeriton, LLC.” Id. at 6.

All reasonable inferences must be drawn in favor of the Stonewater, and

Stonewater’s version of the facts is accepted as true unless entirely unsubstantiated.

Taking Stonewater’s allegations as true, Defendants’ nonperformance was prompt, the

nonperformance was “substantial” in that they did not pay Stonewater the initial remitted

funds under the contract for the roof repairs, and no allegations have been set forth that

there was a change in circumstances. Because it is plausible that Defendants never

intended to perform, representations that they would perform were misrepresentations.

The last prong of the fraudulent inducement claim is detrimental reliance, and Stonewater

alleges that it relied on these misrepresentations by contracting with Merryton and its

labor, materials and/or services in connection with Merryton’s building’s roof.

Stonewater’s allegations satisfy the “bare minimum” of Fed. R. Civ. P. 9(b).

“Malice, intent, Knowledge, and other conditions of a person's mind may be alleged

generally,” and Stonewater makes the requisite allegations. Fed. R. Civ. P. 9(b).

Based on these findings, the allegations by Stonewater have met the standard

necessary to state a claim for fraud.?

CONCLUSION

Based on the foregoing analysis, Defendants’ Motion to Dismiss Fraud Claim

(Record Document 71) is DENIED.

An order consistent with the terms of the instant Memorandum Ruling shall issue

herewith.

THUS DONE AND SIGNED, in Shreveport, Louisiana, this 3rd day of September,

2024.

_LLteccsan [pelea

§. MAURICE HICKS, JR.

UNITED STATES DISTRICT JUDGE

2 Defendants additionally argue that Stonewater has failed to state a plausible fraud claim against them

because the Stonewater Proposal never materialized into an enforceable contract. See Record Document

71-1 at 8. Defendants assert that the Stonewater Proposal is subject to a suspensive condition under

Louisiana law that never occurred. See id. at 9. The Court already found that there is a factual dispute as

to why the suspensive condition was never fulfilled when Defendants made this argument regarding

Stonewater’s breach of contract claim. See Record Document 43 at 5.